Quest Diagnostics 2010 Annual Report Download - page 72

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
Quest Diagnostics Incorporated and its subsidiaries (“Quest Diagnostics” or the “Company”) is the world’s
leading provider of diagnostic testing, information and services, providing insights that enable patients, physicians
and others to make better healthcare decisions. Quest Diagnostics offers patients and physicians the broadest
access to diagnostic laboratory services through the Company’s nationwide network of laboratories and patient
service centers. The Company provides interpretive consultation through the largest medical and scientific staff in
the industry, with approximately 900 M.D.s and Ph.D.s, primarily located in the United States. Quest Diagnostics
is the leading provider of clinical testing, including gene-based and esoteric testing, anatomic pathology services
and testing for drugs-of-abuse in the United States, and the leading provider of risk assessment services for the
life insurance industry in North America. The Company is also a leading provider of testing for clinical trials.
The Company’s diagnostics products business manufactures and markets diagnostic test kits and specialized point-
of-care testing. Quest Diagnostics empowers healthcare organizations and clinicians with robust information
technology solutions that can improve patient care and medical practice.
During 2010, Quest Diagnostics processed approximately 146 million requisitions through its extensive
network of laboratories in virtually every major metropolitan area throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all entities controlled by the Company through
its direct or indirect ownership of a majority voting interest and the accounts of any variable interest entities
where the Company is subject to a majority of the risk of loss from the variable interest entity’s activities, or
entitled to receive a majority of the entity’s residual returns or both. The Company assesses the requirements
related to the consolidation of variable interest entities (“VIEs”), including a qualitative assessment of power and
economics that considers which entity has the power to direct the activities that “most significantly impact” the
VIE’s economic performance and has the obligation to absorb losses of, or the right to receive benefits that could
be potentially significant to, the VIE. The Company’s relationships with variable interest entities were not
material at both December 31, 2010 and 2009. Investments in entities which the Company does not control, but
in which it has a substantial ownership interest (generally between 20% and 49%) and can exercise significant
influence, are accounted for using the equity method of accounting. As of December 31, 2010 and 2009, the
Company’s investments in affiliates accounted for under the equity method of accounting totaled $44.9 million
and $46.3 million, respectively. The Company’s share of equity earnings from investments in affiliates, accounted
for under the equity method, totaled $29.6 million, $33.2 million and $29.7 million, respectively, for 2010, 2009
and 2008. All significant intercompany accounts and transactions are eliminated in consolidation.
Basis of Presentation
During the third quarter of 2006, the Company completed its wind-down of NID, a test kit manufacturing
subsidiary, and classified the operations of NID as discontinued operations. The accompanying consolidated
statements of operations and related disclosures have been prepared to report the results of NID as discontinued
operations for all periods presented. See Note 16 for a further discussion of discontinued operations.
Certain reclassifications have been made to prior year amounts in the consolidated statements of cash flows
to conform to the current year’s presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
Unites States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
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